The first quarter GDP report was really bleak, the weakest in 50 years, but despite a shortage of tangible positive economic news, US consumers are growing more confident and doing their part: although total spending is still down from a year ago, inflation-adjusted personal consumption expenditure, or PCE, increased 2.2 percent versus 4Q 2008.
Consumer spending has started to recover from the terrible weakness in second half 2008, when it fell at an annual rate of about four percent. (Between 2005 and 2007, PCE chugged along at between two and three percent per year, adjusted for inflation.) Looking at the quarter in detail, the trend in spending was strongest in January 2009, although it turned negative in March, but even a rising trend doesn’t go up every month.
This chart shows the large drop in 2008:
The second illustrates how unusual any drop in PCE is, compared to the steady growth over the last 50 years:
More interesting to me is the sudden jump in consumer confidence for April, as tabulated by the Conference Board. The index rose to 39 from 26, a terribly low level, in March; the base of 100 was set in 1985.
We can’t yet tell whether sentiment has truly turned, but if it has, there’s been a change in the sequence of economic events. In prior recessions, consumer confidence made sharp recoveries, but only after the convincing signal of decreases in new claims for unemployment, usually for about four months. Weekly new claims are still very high, and could be on track to blow through the 1982 record of 695,000.
To illustrate the cycles consumer confidence follows, this graph plots consumer confidence against the unemployment rate (rather than new claims). The March low is comparable to the depths of the 1992 recession, but not quite as depressed as 1982, during extremely high unemployment.
Sources: Conference Board (consumer confidence); St. Louis Federal Reserve Bank (unemployment rate)
